Question 7 of 9 < Cost of plant Annual cash inflows Annual cash outflows Estimated useful life Salvage value Discount rate Sweet Acacia Skateboards is considering building a new plant. Anthony Al-Saigh, the company's marketing manager, is an enthusiastic supporter of the new plant. Michelle Hall, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated for the construction of a new plant: $7,260,000 $7,260,000 $6,715,500 15 years $1,210,000 -/1 E 8% Click here to view the factor table. : Anthony believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy Canadian" patriotism. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $302,500 higher each year than projected above, and that the savings from lower warranty costs and legal costs will be $121,000 per year. He also believes that the project is not as risky as assumed above, and that a 6% discount rate is more reasonable. SUPPORT
Question 7 of 9 < Cost of plant Annual cash inflows Annual cash outflows Estimated useful life Salvage value Discount rate Sweet Acacia Skateboards is considering building a new plant. Anthony Al-Saigh, the company's marketing manager, is an enthusiastic supporter of the new plant. Michelle Hall, the company's chief financial officer, is not so sure that the plant is a good idea. Currently, the company purchases its skateboards from foreign manufacturers. The following figures were estimated for the construction of a new plant: $7,260,000 $7,260,000 $6,715,500 15 years $1,210,000 -/1 E 8% Click here to view the factor table. : Anthony believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own skateboards the company will benefit from a "buy Canadian" patriotism. He also notes that the firm has had numerous quality problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales, increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $302,500 higher each year than projected above, and that the savings from lower warranty costs and legal costs will be $121,000 per year. He also believes that the project is not as risky as assumed above, and that a 6% discount rate is more reasonable. SUPPORT
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 7 of 9
<
Cost of plant
Annual cash inflows
Annual cash outflows
Estimated useful life
Salvage value
Discount rate
Sweet Acacia Skateboards is considering building a new plant. Anthony Al-Saigh, the company's marketing manager, is an enthusiastic
supporter of the new plant. Michelle Hall, the company's chief financial officer, is not so sure that the plant is a good idea. Currently,
the company purchases its skateboards from foreign manufacturers. The following figures were estimated for the construction of a
new plant:
$7,260,000
$7,260,000
$6,715,500
15 years
$1,210,000
-/1 E
8%
Click here to view the factor table.
:
Anthony believes that these figures understate the true potential value of the plant. He suggests that by manufacturing its own
skateboards the company will benefit from a "buy Canadian" patriotism. He also notes that the firm has had numerous quality
problems with the skateboards manufactured by its suppliers. He suggests that the inconsistent quality has resulted in lost sales,
increased warranty claims, and some costly lawsuits. Overall, he believes sales will be $302,500 higher each year than projected
above, and that the savings from lower warranty costs and legal costs will be $121,000 per year. He also believes that the project is not
as risky as assumed above, and that a 6% discount rate is more reasonable.
SUPPORT
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